Budget battle brewing in Colo over taxes, Medicaid

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DENVER - Republicans who control the Colorado House have the chance to put their stamp on the state budget next year - and it's looking like they'll force a standoff with Democrats and Gov. John Hickenlooper over a tax break for seniors and Medicaid spending.

With a one-vote advantage, House Republicans are standing firm on keeping a $98.6 million property tax break for seniors scheduled to be reinstated next year, despite Hickenlooper's insistence that the state can't afford it.

So how would the state pay for the tax break? Republicans are driving the debate toward scaling back Medicaid spending and getting flexibility in the program, which they also blame for increasing cuts to education. Medicaid would account for $185.6 million of the $227.1 million spending increase in the general fund, which is expected to be at about $7.4 billion under Hickenlooper's proposal. The bad economy has prompted increases in Medicaid enrollment and spending.

The Democratic governor has repeatedly told lawmakers it's not possible to cut Medicaid because the new federal health care law prevents states from restricting who receives the health care assistance.

The result is likely to be election-year accusations about taxing the elderly to balance the budget, ignoring education and refusing medical care for poor children.

"It is unfortunate that the governor has decided to balance the budget by cutting education and increasing entitlement spending," said Republican Speaker of the House Frank McNulty.

The budget process alternates each year between the chambers and begins this upcoming spring in the House, which means Republicans will get first crack at dictating the terms of negotiations before the budget goes to the Democratic-controlled Senate. For the senior property tax break to be eliminated, lawmakers will have to pass legislation - an unlikely scenario in the House.

The tax break known as the "homestead exemption" allows homeowners 65 years and older to deduct 50 percent of the first $200,000 of property value on their taxes. Only seniors who have lived in their homes for at least 10 years qualify. The voter-approved tax break has been a political football of sorts, and lawmakers from both parties have previously voted to postpone it and keep the money in tough budget years.

"I'll tell you what reality is and what they'll say," said Rep. Mark Ferrandino, the Democratic leader in the House. "The reality is, it's going to come out of K-12 or higher education. They're going to say we can take it out of Medicaid. Let's just get waivers and we'll solve the Medicaid problem."

But Ferrandino said the only way to cut Medicaid costs is to kick off the most expensive populations off the rolls - the elderly, low-income children and the disabled.

K-12 education and public colleges have been one of the biggest targets for cuts to balance the state budget in recent years, a trend expected to continue next year. Although the reductions won't be as drastic as in past years, Hickenlooper's budget proposes a $89 million cut to K-12 education and about a $60 million reduction from public colleges.

Eric Brown, Hickenlooper's spokesman, said the governor is open to discussing options for containing Medicaid costs. "But there's no such thing as a magic waiver to get around federal law," he added.

With budgets tight around the country, some Republican governors want the Obama administration to waive requirements in the new health care law and other legislation that keep them from restricting Medicaid eligibility. Another option they've brought up is getting a block grant where the federal government gives states money, with some strings attached, and lets them decide how to spend it.

But it's unlikely the Obama administration will grant waivers from the federal health care law, said Christie Herrera, the director of health and human services task force at the American Legislative Exchange Council, which favors limited government and conservative public policy.

"The federal government has signaled no intent to come to the negotiating table," Herrera said.

McNulty did not say how Republicans will keep the homestead tax exemption if they can't get the Medicaid waiver they want. "Well, we'll address that issue when it comes to us," he said.

McNulty argued that if Republicans are counting on an unknown to balance the budget, Hickenlooper is taking a chance, too. Republicans need federal permission to cut Medicaid spending, and Hickenlooper needs the Republican House to vote to eliminate and delay a tax break.

"The governor needs an affirmative act to increase property taxes on those seniors most in need," McNulty said. "What's the governor's plan B?"